At some point, business owners may decide to dissolve their limited liability company (LLC). Generally speaking, while LLCs can go on indefinitely, in many cases, an LLC has a definitive lifecycle. Sometimes a closure time frame is even pre-planned by its members right from the beginning.
Reasons why people pursue LLC dissolution in Colorado include business closure, owner retirement, relocation, failure to launch, mismanagement, financial issues, legal issues, member disagreements, irreparable brand damage, and completion of the LLC’s original purpose. Other reasons may also contribute to the ending of an LLC.
Launching an LLC in Colorado involves many obligatory steps and, much like the beginning, the end of an LLC also necessitates specific steps to be taken. In this article, we’ll look at the different types of LLC dissolution, along with the actual steps and requirements associated with how to dissolve an LLC in Colorado.
Pursuing the dissolution of an LLC involves taking action to officially dissolve the business structure with your registered state. In Colorado, once you complete LLC dissolution, you effectively remove your LLC’s legal status and the company will dissolve its current existence. Let’s take a deeper dive into what this means.
LLC dissolution is a legal process that goes beyond simply shutting your business’ doors. It involves reaching a conclusion for all aspects of your company’s legal and financial dealings, along with initiating a legal termination in the State of Colorado. Once this occurs, the LLC ceases to exist in Colorado and another entity can take over the LLC’s name almost immediately.
Dissolution of an LLC falls into three categories: administrative, judicial, and voluntary. In this section, we’ll explain exactly what this entails in Colorado.
In an administrative dissolution scenario, the state will remove an LLC’s rights, authority, and powers due to the LLC neglecting to comply with its obligations. Examples might be neglecting to submit a required annual report or failing to comply with one or more of the state’s laws.
Judicial dissolution is much like what it sounds like. The dissolution occurs with court intervention. Usually, this is the result of a lawsuit based upon disagreement by the LLC’s members or when action is taken by a disgruntled member.
Often this scenario involves a breach of fiduciary responsibility, fraud, mismanagement, or other problematic issue. Once a judicial dissolution takes place, you cannot reinstate your LLC. The state immediately releases your company’s name and makes it eligible for registration by another entity.
If all LLC members agree through a vote to close the business, this would be a voluntary dissolution of an LLC. In the event a decision involves many members, it is likely to be made by a majority vote. In some cases, an LLC can dissolve due to provisions in the original operating agreement, such as a member’s death or another agreement made during the formation of the LLC.
If an LLC’s owners (members) opt to dissolve their company, they are deciding to take the voluntary dissolution route. For this to successfully occur, members of the LLC must vote in favor of the resolution and/or obtain a majority decision from members. Depending upon how the original agreement was drawn up, members may be able to dissolve the LLC if any action or event triggers any pre-agreed-upon clauses.
For the most part, the process in Colorado is similar for both a single and a multi-member LLC dissolution. A primary difference is all members (or majority) of an LLC must consent, whereas in a single member LLC, the sole member would be the sole consenting party.
To successfully dissolve an LLC in Colorado, members must be sure they thoroughly understand the dissolution clause(s) in their LLC operating agreement. Clauses in the original agreement govern the process of dissolving the LLC. You must explicitly follow any rules outlined in it.
Members must adhere to any specific requirements indicating how many members or what percentage of members vote in favor of dissolving. In some cases, a meeting or other formality must be met before a vote can occur. Colorado rules also indicate members must pay off all of the company’s debts prior to the distribution of any remaining assets. If debts cannot be paid off, the members do not qualify for distributions.
As a part of the dissolution process, LLC members will need to wind up various aspects of the business’s operations. Typically critical matters needing resolution include:
This list outlines a few of the most common issues needing resolution before you can dissolve your LLC, but your company may first have additional business-specific issues it needs to attend to.
It is vital for LLC member(s) to initiate written contact to notify creditors and claimants about the LLC’s dissolution. A primary business requirement is to pay off any debts, including credit cards and loans, before the LLC’s dissolution can reach finalization. Once the LLC’s members finish handling debts, the division and/or liquidation of any remaining assets can take place.
To further complete the process of dissolution of your Colorado-based LLC, you must file your final tax returns which include your federal, state, and local obligations. You must also settle any employee payroll tax obligations. Once you obtain tax clearance by getting DR Form 0096, you can proceed.
The final step in dissolving your LLC is to file a Statement of Dissolution online with the Colorado Secretary of State (some states will refer to this document as a “Certificate of Termination”. To do this, you will navigate to the Secretary of State’s website and take the following steps:
Once you search for and find your LLC on Colorado’s website, the Statement of Dissolution form will include your company’s ID number, entity name, and jurisdiction. These sections are typically pre-filled out and on record with the Secretary’s office. Colorado state law stipulates you must also include the following additional information in the form:
Additionally, if you need to attach additional information to the form, be sure to upload the correct attachments. The fee for a Statement of Dissolution in Colorado is $25 and you must pay this when you submit your online form.
Some people dissolve an LLC because they have been in the business as long as they want, and they’re ready to retire or to seek new opportunities. Other dissolutions come about because of disagreement between the members or lack of business success. In any case, dissolving something that you put so much of yourself into can be an emotionally fraught process.
Filing the Articles of Dissolution is, in a sense, the final curtain, but most of the dissolution activities occur before that definitive date when you send the form to the Oklahoma Secretary of State. Actually making the decision to shut down may be the hardest part of the process. We have detailed the steps you need to take between that decision and the signature on the form that definitively puts your LLC to rest.
Before you wrap it all up, take a moment to congratulate yourself on the risk you took, the business you built, and the experience you gained. Good luck with whatever comes next!
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness. It also does not indicate any affiliation between Tailor Brands and any other brands, services or logos.
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